US Federal Reserve cuts interest rates after 4 years: What does the decision mean?

Global markets followed a positive trend last week as expectations for a 'soft landing' strengthened following the US Federal Reserve's (Fed) 50 basis point interest rate cut after a 4-year hiatus, while eyes turned to the growth data to be announced in the US.

The Fed cut its policy rate for the first time in 4 years, lowering it by 50 basis points to the 4.75-5.00 percent range.

In the statement made by the Fed, it was noted that according to recent indicators, economic activity continues to expand at a solid pace, and it was recorded that employment gains have slowed and the unemployment rate has risen but remains low.

Noting that the economic outlook is uncertain, the statement emphasized that risks on both sides are being monitored.

According to Fed projections, inflation forecasts were lowered from 2.6 percent to 2.3 percent for this year, and from 2.3 percent to 2.1 percent for 2025.

The US economy's growth forecast was lowered from 2.1 percent to 2 percent for this year, while it is projected at 2 percent for 2025, 2026, and 2027. Forecasts for the unemployment rate were raised from 4 percent to 4.4 percent for this year and from 4.2 percent to 4.4 percent for 2025.

INFLATION RISK HAS DECREASED

Speaking after the meeting, Fed Chair Jerome Powell stated that the upside risks to inflation have decreased and the downside risks to employment have increased, expressing that the 50 basis point rate cut decision reflects growing confidence that the strength of the labor market can be maintained with an appropriate recalibration of the policy stance.

Stating that the US economy is generally strong and that significant progress has been made toward goals over the last two years, Powell noted that the labor market has 'cooled' compared to its former 'overheated' state and that inflation has decreased significantly.

While the direction of the US economy continues to be evaluated worldwide following the Fed's decision on Wednesday, the possibility of avoiding a recession has fueled risk appetite.

Fed Chair Jerome Powell

WILL INTEREST RATE CUTS CONTINUE?

According to the Fed's projections, a further 50 basis point cut is expected by the end of the year, while market expectations lean toward a 75 basis point cut. In this case, the importance of the employment data to be announced is seen to have increased, while signals regarding economic activity are also in the focus of investors.

Analysts said that the growth data to be announced in the US next week will also be in the focus of the markets.

With these developments, the US 10-year bond yield finished the week with a 7 basis point increase at 3.72 percent. While the dollar index fell 0.4 percent to 101.7, the ounce price of gold, which saw a record level of 2,625.8 dollars, rose 1.7 percent to 2,622.3 dollars.

With the effect of the positive atmosphere in global markets, the barrel price of Brent oil finished the week with a 3.2 percent increase at 74 dollars.

WHAT IS THE OUTLOOK FOR THE US ECONOMY?

The New York stock market finished the week positively following the Fed's interest rate decision.

According to data released in the US, the number of people filing for unemployment benefits for the first time in the country fell to 219 thousand in the week ending September 14, coming in below market expectations.

The US current account deficit increased by 10.7 percent in the second quarter of the year to 266.8 billion dollars.

In the country, retail sales recorded a 0.1 percent increase in August, contrary to expectations of a monthly decline. Analysts stated that the unexpected increase in retail sales in August shows that consumer spending continues to remain relatively strong.

Industrial production in the US also recorded an increase of 0.8 percent in August on a monthly basis, above market expectations.

On the corporate side, Intel shares gained 11.1 percent after the company announced that they are expanding their strategic collaboration with Amazon Web Services.

Shares of chipmaker AMD rose 2.4 percent. Shares of US tech giants Apple gained 2.6 percent, Meta shares 7 percent, Microsoft shares 1.1 percent, and Alphabet shares 4 percent.

With these developments, the Nasdaq index gained 1.49 percent, the Dow Jones index 1.62 percent, and the S&P 500 index 1.37 percent.

News Source: AA